3 June 2011

Do Clients Get The Buildings They Deserve?

In general I would have to say no, not normally. The reason for this is that there are a number of barriers and disconnections in the supply chain that delivers the majority of commercial buildings. For the purpose of this piece I will focus on office buildings as they represent a significant proportion of the buildings that are commissioned and more importantly affect a large percentage of the population who work in them, but the same barriers can be found in a wide variety of other building types from houses through to hotels. In fact any building that is delivered by the development industry is likely to be compromised by the way the industry is arranged and the different specialists who each contribute to frustrate the vision of the organisations who will eventually occupy them.

A typical development project will be influenced by a number of different experts who will, in combination define what actually gets built. While each player has only limited influence, in combination they have dramatic and damaging effects on the resultant development.
Phoenix Community Housing HQ

Most commercial developments are usually instigated by a Property Development company. Their primary objective is to secure a consent for their proposals and then construct and let the building as quickly as possible. They will usually then sell the completed development to a property fund who will derive income for the period of the lease and also benefit from the increase in the value of the land over the period that they own the asset. 

The issue with this arrangement is that the original Developer does not benefit from any lifecycle improvements, like energy efficiency measures, which could be incorporated into the scheme at design stage. This tends to result in buildings that satisfy the minimum criteria demanded by Planning Authorities and Building Control Departments, but provides little or no incentive to achieve higher levels of performance. Also, if the development is speculative, with no identified end user then there is a natural tendency to adopt generic solutions that will accommodate a range of different occupiers but which may not provide the ideal fit for any organisation.

There are obviously some notable exceptions to this norm and there are now a number of new Development Companies who specialise in delivering highly sustainable developments, but they are still very much the exception to the rule. The majority of sustainable offices built to date have been owner led schemes where the organisation who will occupy the completed development has retained control of the development process.

VolkerFitzpatrick HQ
To help identify the parameters that the proposed building should satisfy Developers will seek advice from Letting Agents who advise on what the market currently demands and the rent that they can anticipate that the market will pay. Their advice is based on a deep understanding of properties that are available and the rents that they have secured. This market intelligence is historic and while it is adjusted to take account of underlying trends in the economy it is always based on historic examples.

This acts as a barrier to innovation in sustainable building design, since there is little precedent that the agents can refer to. Also, as the Developer is placing reliance on their advice to inform his decision making process they are naturally conservative and while they may indicate that more sustainable buildings may let more quickly than less sustainable alternatives, they are usually unwilling to advise that any increase in rent will be achieved as a result of delivering a higher performing property.

To fund the purchase of the land and the construction costs incurred to build the completed project Developers will usually seek finance from funding institutions, who will commit to purchase the completed project once it has been let. They again will be advised by Property Agents who again use historic data to guide investment decisions. They often take an even more risk adverse position and introduce another series of barriers to innovation. Until quite recently they demanded air-conditioning and would penalise low energy alternatives.

Funding Institutions, like pension funds, and their advisors probably have more influence on what gets built than any other party in the chain and yet their role and influence often goes unrecognised. I guess that as they are investing our hard earned pension contributions a degree of caution could be seen as beneficial but that may not prove to be the case. With rapidly increasing energy costs and the threats posed to the built environment by the effects of climate change surely low energy buildings actually represent safer assets in the long term?

Romero House CAFOD

The final party to have their influence are Landlords who manage the output of the development process. Yet again they are advised by Agents who as we know are not willing to place a premium on sustainable building design. The other issue that frustrates investment in the existing building stock is the effect of supply and demand in the UK property sector. Our economy is heavily dependant on property as an investment asset class and in general its value over the medium to long term has steadily increased. The combination of an undersupply of new stock and the inertia caused by steadily increasing property values, results in there being little incentive to make the significant investment required to improve the performance of existing buildings. This is a major problem as a large percentage of our building stock is now not fit for purpose in terms of its energy performance and the cost of renovation will be dramatic. To make the task even more difficult, making significant improvements to the energy performance of existing buildings requires the tenants to move out, but since there is already an undersupply there is nowhere for all the tenants to go!

So what is the alternative? Well, for a number of organisations who want a high performing, sustainable workplace they are choosing to circumvent all of these disconnections and develop their own buildings. This approach allows them to design bespoke solutions that fit their specific needs and which will perform to the highest standards of social, economic and environmental sustainability. A significant advantage of this approach is that it limits the number of parties who need to make a profit from the development process. These savings can be reinvested to fund the performance enhancements that they demand. I guess if the market cannot supply what you demand then why not cut out the middle men and make it yourself?

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